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Bank on It Around the Globe

The best international bank stock values are often where you least expect.

Legendary bank robber Willie Sutton supposedly said that he robbed banks because that's where the money is. Turns out he never said that; he later admitted that he actually robbed banks just because it gave him a thrill.

But the Sutton legend is great advice for investors, who should look for cheap, quality bank stocks in international markets -- because that is where much of the money in growing economies eventually ends up. Once an economy begins to take off, commercial lending is crucial for business expansion. Money-center banks are a fundamental prerequisite to a stable currency and international trade. Retail lending through credit cards, mortgages, and car loans fuels middle-class consumer booms.

On the other hand, if a country's banking sector isn't secure enough to invest in, you probably don't want to have your investment dollars in that country, anyway.

You can turn to the gargantuan foreign banks if you want familiar names: Barclays(NYSE:BCS), BNP Paribas, ING, ABN AMRO, HSBC, and so on. But like their American counterparts, the big European banks are heavily owned by institutions and funds that follow the large-cap financial stocks very closely. The odds of finding a lesser-known, undervalued bank stock in those circles are thin.

The large-cap European banks have also acquired so many U.S.-based divisions in recent years that you may not be buying a stock with a profile much different from Citigroup or JPMorgan Chase(NYSE:JPM), which also operate around the world.

Here, then, are five banking plays from countries outside the usual big-bank circles.

Bangkok Bank (OTC BB: BKKPF.PK)I first bought the Thailand Fund a few years ago, to round out a set of holdings in Asia. I hadn't contemplated buying individual stocks in Thailand, since most of them are hard to buy on U.S. exchanges. Then I saw Bangkok Bank mentioned in an article on lesser-known Asian value stocks.

The valuation ratios fit my criteria: price-book around 1.5 (the industry norm is 2 to 2.5) and a trailing P/E at 11-12. Can we trust those numbers? Well, the 1997 Asian Contagion financial crisis prompted the region's financial institutions to clean up their act, and as a result, they're all stronger and more reliable as investments today.

The final test was simple. I asked a friend in Thailand what he thought about the bank. Not the balance sheet and arcane fundamentals. But did he like the bank? Did he use it? The answers were all yes. That, combined with my other research, was enough to prompt me to take a small position.

As with many Pink Sheets-traded ADRs, the best place to find detailed financial information on Bangkok Bank is its website. You can even get a daily share price there from the Thai stock exchange.

Den Norske Bank (OTC BB: DNBHF.PK)This one came from another investing colleague who served in Norway many years ago and now owns shares in several companies there. Given the steady cash flow from Norway's oil and gas reserves, investing in Norway's largest financial services group makes a lot of sense.

Den Norske Bank's nine-month results showed solid earnings growth of 17.7% year over year and an 18% return on equity. Corporate lending growth was especially strong at 29%, thanks to extensive syndication activity. Each of DNB's business areas showed promising growth compared with 2005.

Like Bangkok Bank, DNB's trailing P/E is less than 12 in a healthy economy with strong natural-resource exports. The company's latest earnings report is here (opens PDF).

National Bank of Greece(NYSE:NBG)Greece is another country that drew little attention from international investors until the Olympics forced a massive upgrade of its infrastructure. NBG's third-quarter report, which included 17% year-over-year growth in net interest income, has Citigroup analysts liking the bank.

NBG's total outstanding loans account for only 75% of its deposit base. That means it gets all of its money to lend in-house at cheap interest rates, which yields a nice spread on loan interest income. The projected P/E for 2007 is 10.5, with a price-book of just above 2.

The most interesting part of the NBG growth story is what the company is doing outside Greece. It has already expanded to Romania, Bulgaria, and Albania, while loan-book growth in the Southeastern Europe region was 53% year over year. Now NBG is also branching out to Turkey with the acquisition of Finansbank. Instead of waiting for the EU bureaucrats to get around to admitting Turkey (and whether they will is still very much in doubt), NBG is moving ahead to make Turkey an important focus for its own future growth.

Bancolombia(NYSE:CIB)When Bancolombia (CIB) showed up on a scan list almost three years ago, my first reaction was: Colombia -- forget it! A 40-year guerrilla war, narcotraficantes, and too many kidnappings and car bombs for my taste. But contrarian plays sometimes pay off handsomely. CIB was worth a quick look.

Bancolombia was dirt cheap then, with a P/E well below 10 and a share price around $7. Today, you will pay around $30 for a trailing P/E at 14 and a forward P/E around 12. It's not a screaming value, but after merging with a rival, Bancolombia remains a strong growth story, with 25% revenue increases expected in 2007. Equally important, bad loans declined from 4.6% of the loan book in 2001 to less than 2% today.

With the re-election of President Alvaro Uribe and continued economic progress in Colombia, Bancolombia is a good long-term buy-and-hold at today's prices.

Investec (OTC BB: IVTJF.PK)My last international banking pick is not a traditional retail bank. Investec is a combination of asset management, private-client banking, and investment banking. From its South African roots, it branched out to the UK, where it does half of its business today. Its stock trades actively on both the London and Johannesburg exchanges.

The reason to buy Investec today is its phenomenal revenue and profit growth. In its financial year ending March 31, 2006, adjusted earnings rose 52%. Its deposits and lending book were each up more than 40%. ROE was a phenomenal 29%. Management expects the growth to continue with excellent earnings visibility.

One word of caution: When I tried to buy IVTJF online at E*Trade, the order was initially routed to NITE, a U.S. market maker, where it sat. I had to call E*Trade to get the order rerouted to its foreign desk, where it filled easily. You may need to call your broker to make sure your order gets routed correctly.

Good luck shopping the world for great bank stocks. There are always more out there, waiting to be found in the strangest places.

Bill Mannand the Global Gains team are scouring the globe for the best international stocks. Sign up for a free trial toGlobal Gainstoday.

JP Morgan Chase is an Income Investor selection.

Fool contributor Dale Baker, a private-client portfolio manager and former U.S. diplomat,owns shares in Bangkok Bank, Den Norske Bank, National Bank of Greece, Bancolombia, and Investec for himself and Bancolombia for his clients. He welcomes your questions and comments atdabmu@yahoo.com. The Fool's disclosure policy speaks seven languages.